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Reliable news to break corn's upside

Corn: With the beans providing the support to corn over the last couple days, there is little surprise that a setback in the beans would translate into corn falling back.

 

          

 

               

 

Fundamentals took over again today, taking the December corn back down to 1 1/4 of a penny shy of last support of 375 1/4. While it was unlikely the support was going to be broken on a Friday, it is possible to do so to start the week. Strong support will need more reliable news to break it. That news could be a large planting pace number Monday afternoon. This would also suggest that we could hold that support Monday as well. Last week sellers jumped ahead of the planting report, only to get a surprisingly low number and had to buy a good part of it back Tuesday. Even though all the producers you talk to will say the number should be around 50%, are sellers really willing to go out on a limb twice? If they choose to take that risk again on Monday, selling will have to break major support because there just isn’t much room left to sell without doing so. Either way, by Tuesday morning we will know if support is to be taken out. As most know already, this rain system will be impacting everyone adding more to the bearish tone that already exists. Those looking for a run higher in corn will have to rely on more spec buying of the beans and wheat for near term support. Those looking for corn to fall simply need support to be taken out early next week. Looking forward in weather, the forecast has little change from earlier in the week. Things dry out early next week before the next system moves in on Thursday. Lastly, keep in mind that the trade's idea of an early planting pace is 50% planted before May 1st. That will be talked about much more next week especially after seeing Monday's number. Last week heavy resistance came in at 400, this week it was 390 and next week may be tough to rally corn without large speculative buying.

Direction: Sideways is still our expected direction. Lower hedge prices may be seen next week which does not allow much of a range for the corn to trade in. We will look at support to be 375 1/4 to start next week with resistance at least 390 if not lower…Ryan Ettner

Working Trades:
(03/24) Bought July 380 call/sell July 440 call/sell July 340 put 4 1/2, risk to -4, objective 19. Closed 0.
(04/19) Bought July 359, risk 349, objective 373 3/4. Closed 361.
***Disclaimer*** The commentary and trades below are derived from technical indicators provided in our Allendale Advanced Charts pages and may not correspond with the fundamental commentary above.

Advanced Charts Direction: After corn found it too tough to push through the downtrend today it headed south instead. Volume was large, so this weakness could continue next week. Key support is not far below at 355. We remain short from 372…Monica Moehring

Vital Technical Indicator: the next projected major turn day is May 4.

Closing Hogs Commentary

Lean Hogs: A client reminded us this afternoon that today is the one year anniversary from the media grabbing the swine flu story and running with it. On that Thursday the June 2009 futures fell 50 cents. The next day the drop was 22 cents. The following Monday it closed $3.00 lower. We are not suggesting this was the reason for sudden late day price break but it was something to note. At this point we are attributing the sharp decline at 1230 pm as being a one day thing. Most fundamentals remain clearly supportive.

Long Term: For the weekend commentary we wanted to give you a little more meat to chew so to speak. Livestock economists have a balance sheet for meat that is similar to grains. Instead of ending stocks driving prices it is the amount left for US consumers. The balance sheet is SUPPLY (beginning stocks + production + imports) – KNOWN DEMAND (exports + ending stocks) = DOMESTIC DISAPPEARANCE. That domestic disappearance is further divided by the US population to make a PER CAPITA CONSUMPTION figure. It is per capita consumption that drives price. The following abbreviated table, shown in billion lbs., show you why this supply issue is driving prices so sharply.

PORK PRODUCTION

I II III IV ANNUAL
2004 5.130 4.897 5.047 5.435 20.509
2005 5.138 5.021 5.000 5.526 20.685
2006 5.335 5.008 5.087 5.625 21.054
2007 5.396 5.128 5.256 6.163 21.943
2008 6.024 5.593 5.632 6.098 23.347
2009 5.811 5.488 5.698 5.996 22.993
2010 5.519 5.342 5.465 5.845 22.171
2011 5.477

PORK LEFT FOR US CONSUMERS

I II III IV ANNUAL
2004 4.883 4.616 4.849 5.080 19.428
2005 4.752 4.565 4.628 5.097 19.043
2006 4.827 4.482 4.672 5.068 19.048
2007 4.842 4.698 4.793 5.437 19.770
2008 5.135 4.411 4.698 5.267 19.512
2009 5.983 4.732 4.892 5.093 19.700
2010 4.665 4.395 4.562 4.901 18.523
2011 4.549

NET EXPORTS

I II III IV ANNUAL
2004 0.247 0.281 0.198 0.355 1.081
2005 0.386 0.456 0.372 0.428 1.642
2006 0.508 0.526 0.415 0.557 2.005
2007 0.554 0.430 0.463 0.726 2.173
2008 0.888 1.182 0.934 0.831 3.835
2009 0.828 0.756 0.806 0.903 3.292
2010 0.854 0.948 0.904 0.943 3.648
2011 0.929

We estimate pork production in 2010 will total 22.171 billion lbs. That is the smallest in three years. After you take out net exports (exports – imports) you can see that the amount of pork left for US consumers fall 6% from last year to 18.523 billion lbs. This is the smallest amount on this table shown. It is also the smallest amount in easily over 10 years. The balance sheet gets even better once you make it a per capita figure. A rising US population, at about +0.9% each year, means the per capita figure looks even better. There is a very clear reason why the pork cutout is at $90 right now.

Direction: Our upside target, for the June contract to hit $87.50, was reached today. We must point out this is our minimum upside target. This is not a price that we are calling a top at. Based on what we know at this moment, there is no reason to call a top here...Rich Nelson

Working Trades:
(04/06) Sold June 80 put 1.30, risk 1.60, objective 0. Closed .95.
(04/15) Bought June 86.00, risk 84.92 filled 04/23 -$430.
***Disclaimer*** the commentary and trades below are derived from technical indicators provided in our Allendale Advanced Charts pages and may not correspond with the fundamental commentary above.

Advanced Charts Direction: Hogs posted a key reversal today by hitting a new contract high, then closing well off this high and below the recent lows. The market even dipped below the 20 day MA for a time, then recovered some into the close…Monica Moehring

Vital Technical Indicator: Next projected major turn day for lean hogs is April 27.

Rich Nelson
Director of Research
Allendale, Inc
4506 Prime Parkway
McHenry, IL 60050
800-262-7538

Hypothetical performance results have many inherent limitations, some of which are described below. No representation is being made that any account will achieve profits or losses similar to those shown. In fact, there are frequently sharp differences between hypothetical performance results and the actual results subsequently achieved by any particular trading program. One of the limitations of hypothetical performance results is that they are generally prepared with the benefit of hindsight. In addition, hypothetical trading does not involve financial risk, and no hypothetical trading record can completely account for the impact of financial risk in actual trading. For example, the ability to withstand losses or adhere to a particular trading program in spite of trading losses are material points which can adversely affect actual trading results. There are numerous other factors related to the markets in general or to the implementation of any specific trading program which cannot be fully accounted for in the preparation of hypothetical performance results and all of which can adversely affect actual trading results.

Corn: With the beans providing the support to corn over the last couple days, there is little surprise that a setback in the beans would translate into corn falling back.                                 

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